Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



3 Things Shared by Warren Buffett's Best Investments

Photo by: thetaxhaven.

Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) didn't grow to become a $290 billion company without some help. Having Warren Buffett at the helm helped a lot.

As Chairman of Berkshire, Buffett's made several outstanding investments in industries ranging from financial services to consumer products. And although these investments differed in some ways, they all shared surprising similarities.

1. Brands that have pricing power
Warren Buffett looks for companies that can survive and thrive over decades, and even centuries. One common attribute of Buffett's best portfolio companies is pricing power -- the ability to pass on price increases to consumers.

See's Candies is an excellent example. Berkshire Hathaway purchased the company for $25 million in 1972. Today, it earns $80 million per year. See's Candies has not grown tremendously -- it's still a West Coast confectioner -- but it has raised prices. In fact, Buffett's raised prices every single year for 41 years since he acquired the company.

Other Berkshire mainstays have this attribute. Coca-Cola prices have only gone up over time. In a similar vein, automobile values have gone up over history, and so have the insurance premiums Geico charges its customers. Prices for consumer goods have only risen, driving merchant processing volume at American Express.

When a brand has pricing power, it benefits from the consistent, perpetual tailwinds of inflation.

2. Brands that have staying power
It's one thing to build a good company. It's another to build a great company -- a company that can live on forever.

Warren Buffett often talks of his great companies. Gillette, for instance, is a company with gross margins in excess of 40% that sells a product (razors) that will always be in demand. Mars owns the Snickers brand, the top candy bar in the world for 40 years straight. And of course there's ol' reliable, Coca-Cola, which has been the leading cola ever since the birth of the lovely carbonated beverage.

3. Interest-free financing
If a loan never has to be repaid, is it really a loan at all?

Warren Buffett understands this well. Insurance companies generate what is called a float -- money received in premiums that will be paid out on some unknown date in the future. If a company continuously creates a float, which only grows in size year after year, it effectively borrows money at zero and never has to repay the debt.

Warren Buffett's best acquisitions were often in pursuit of a float. He bought a company called Blue Chip Stamps in 1962. Blue Chip Stamps operated a loyalty program, wherein stores would pay the company to provide rewards to customers who would later redeem their stamps for products like furniture or silverware. Buffett would later use its float to finance the acquisition of See's Candies.

Wal-Mart famously paid suppliers well after it received money from customers, allowing Sam Walton to open new Wal-Mart stores partially financed by his vendors. (At any time, Wal-Mart is owed money for 4.5 days' sales, but it takes as many as 41 days to pay its suppliers. Wal-Mart is a core Buffett holding.) 

There's no secret to Buffett's success
Buffett doesn't make a secret of his investing strategies. He's a generous teacher, sharing investing tips in every annual letter to Berkshire shareholders. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2759131, ~/Articles/ArticleHandler.aspx, 9/27/2016 3:22:50 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 6 hours ago Sponsored by:
DOW 18,094.83 -166.62 -0.91%
S&P 500 2,146.10 -18.59 -0.86%
NASD 5,257.49 -48.26 -0.91%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/26/2016 4:00 PM
AXP $63.42 Down -0.43 -0.67%
American Express CAPS Rating: ****
BRK-A $216160.00 Down -1590.00 -0.73%
Berkshire Hathaway… CAPS Rating: *****
BRK-B $144.18 Down -0.82 -0.57%
Berkshire Hathaway… CAPS Rating: *****
KO $42.05 Down -0.69 -1.61%
Coca-Cola CAPS Rating: ****
WMT $71.62 Down -0.73 -1.01%
Wal-Mart Stores CAPS Rating: ***